February 8, 2018 | The Miss

Garth Turner

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics.
Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Recent topics have included fear & loathing on the stock market (down 1,032), fear & loathing on the crypto market (BTC @ $8k) and, of course, fear & loathing in the housing market (416 detacheds crash $90k). Throw in a few canines and hormones and you pretty much have the pathetic Greater Fool formula for mind-numbing tedium.

So, let’s expand our repertoire and add fear & loathing about retirement. Seriously. This has the potential to dominate and define life in this frozen country for decades as the wrinklies move into their Depends Years and the Mills grow up and freak out. Twenty-three years ago I wrote a book forecasting a retirement crisis about now. Bingo. Here.

The latest tally from one of the big banks (the maroon one) confirms:

People who should know better (aged 45-64) who have saved nothing: 32%

Canadians who have no idea if they’re saving enough (but doubt it): 53%

Average amount people think they need to save to retire: $756,000

Average amount actually saved: $184,000

People with less than $50,000 saved: 19%

People with absolutely nothing saved: 30%

Men with a financial plan: 32%

Women without a plan: 78%

Meanwhile, as you know, 70% of Canadian own houses and have a collective $2 trillion in debt, two-thirds mortgages. But it gets worse: the household savings rate has declined to merely 2.6% of income, down almost half in a year and vastly below the 7.4% average for the last 35 years. In other words, debt is ramping up by about 8%, meaning we’re spending more than we earn, financing the rest while saving at a rate barely about inflation.

Concurrently, interest rates have reversed after eight years in the ditch. People renewing mortgages this year (42%) will do so at an increased cost, affecting cash flow. And there’s $220 billion in home equity LOCs which are at floating rates, 40% of which are not being repaid – just growing. Let’s totally depress ourselves with a reminder that 93% of TFSAs are not fully funded and most of the money in there sits in interest-bearing investments, making nothing.

What are we thinking? Now that bond yields are swelling so fast that stock markets are affected, the cost of all that debt is going nowhere but up.

This is a snapshot of failure. Financial illiteracy. Epic miss. Even rich people are messing up. Of those who want $100,000 retirement incomes and need $2 million saved to finance that, just one in six has achieved it.

In response, the feds and provinces have enhanced CPP – but it’s so distant only today’s teens will see any extra dough at 65, (and it’ll be minimal). Along the way the current government has slashed contributions for the single best retirement vehicle (the tax-free account) and is systematically raising taxes on small business owners, the self-employed, higher income-earners, investors (soon) and, via enhanced CPP premiums, the entire middle class. That makes saving harder. So do elevated mortgage rates.

Well. What a cock-up. As this situation festers you can bet politicians will try to ‘fix’ things by increasing taxes more in order to fund universal retirement incomes that will provide subsidence living for millions of surprised seniors. Another safe bet is that real estate – where most people have the bulk of their net worth – will come under pressure as pension-poor wrinklies are forced to cash in. Remember that 72% of Canadians lack guaranteed retirement incomes, or have low-energy mutual fund-based group RRSPs run by dweeb insurance companies.

All this goes to the basic message of the blog. Never gamble, but invest. Don’t ever put all of your net worth in one asset. Pursue balance, with a variety of assets – including liquid ones. Cease borrowing money. If you can’t afford the house you want, stop wanting it. And get a plan, which doesn’t involve hope, theft or lottery winnings.

Let’s remind again what a hundred bucks a week in a balanced ETF portfolio brings: At an average 7% return after 30 years it sums $532,000 (of which 376,000 is growth). This should provide an annual income of $37,000, tax-free. Add in CPP and OAS, and the total is $55,000 – no taxes.

Sure this might not be enough to survive on a few decades from now. And, yup, stock markets are going to plunge a few times (like today) as well as gain. But that’s no excuse for not starting. Combine this with the tax-shifting power of an RRSP, and you can stop being a statistic.

Sober prediction: most people won’t change anything. They’ll use a day like this on financial markets as an excuse. They will borrow, nest and shelter in place. They will vote for the guy taxing someone else, who promises loaves and fishes. So you might want a moat, too.